The Obama administration is looking to eliminate about $4 billion in tax breaks for the oil and gas industry in 2012, hoping to raise revenue to offset the costs of clean and renewable energy projects.
The Obama administration is looking to eliminate about $4 billion in tax breaks for the oil and gas industry in 2012, hoping to raise revenue to offset the costs of clean and renewable energy projects.

Following through on a pledge President Barack Obama outlined in his State of the Union Address, the administration repeals deductions for the industry's domestic manufacturing income and intangible drilling costs in its 2012 budget proposal, taking a swipe at popular incentives the oil and gas industry has enjoyed for years.

The administration released its budget proposal Monday morning, marking the first step in the months-long process to devise next year's federal budget.

The Obama administration has looked to eliminate the oil and gas tax breaks on two previous occasions and has been rebuffed by Congress both times.

Given that Congress has decided to preserve the incentives in the past, even when both chambers were controlled by Democrats, the odds of Congress repealing the incentives with a Republican majority in the U.S. House are even slimmer.

Earlier this year, the head of the Senate Energy and Natural Resources Committee, Sen. Jeff Bingaman (D., N.M.), said he would be "surprised" if such proposals passed.

The oil and gas industry, however, continues to take such proposals seriously, especially since Congress is looking for ways to raise revenue and cut spending as the country's debt load grows bigger.

The American Petroleum Institute, the industry's main lobbying arm, has defended the tax breaks for the last several weeks. The group says the oil and gas industry already pays billions of dollars in taxes, royalties, rents and bonus bids each year and should not be a target for more government revenue.

In his State of the Union address, the president said he wanted to repeal those incentives as a way to pay for clean and renewable energy projects. Funding for those projects plays a major role in the president's proposal.

The Obama administration is proposing to spend $457 million for solar energy research, development and deployment, and $341 million for biofuels and biomass research. It is also proposing $853 million to support nuclear energy.

All in all, the administration sets aside $29.5 billion for the Energy Department, marking an increase of 12% over the 2010 enacted budget.

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